Date: 19991012
Docket: 1999-1227-IT-I
BETWEEN:
PERRY PILON,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Reasons for Judgment
Porter, D.J.T.C.C.
[1] This appeal was heard at Edmonton, Alberta on August 30, 1999.
[2] The matter involves the deduction of $13,435.00 claimed by the Appellant from his income, as alimony or maintenance payments made by him to his spouse from whom he was separated during the 1996 taxation year for the support of his children. When he originally filed his income tax return for that year he did not claim the deduction. The Minister of National Revenue (the “Minister”) by re-assessment on October 14, 1997 allowed the deduction and then by further assessment dated November 18, 1997 disallowed it.
[3] The assumptions of fact upon which the Minister was said to have relied, which are not in dispute, are as follows:
"(a) the Appellant and his spouse separated in January, 1996;
(b) pursuant to a written court order dated December 2, 1996, the Appellant was required to pay $1,500.00 per month for the maintenance of the five infant children of the marriage commencing on the 15th day of December 1996;
(c) on June 18, 1997, a written agreement was signed by the Appellant and his spouse which required the appellant to pay $1,300.00 per month for the maintenance of the 5 infant children of the marriage until December 31, 1996. A new agreement was to be drawn up for 1997;
(d) at the bottom of the June 18, 1997 agreement, "Child support payments started February 1, 1996 prior to the signing of this agreement" (the "additional sentence") was added;"
[4] The Appellant did dispute the following assumptions of fact:
"(e) the addition sentence was added without the consent of the Appellant's spouse;
(f) the prior payments have not been considered as been paid or received in accordance with a written agreement or order of a competent tribunal."
[5] The issue is simple, namely whether the amount is legally and properly deductible in computing the income of the Appellant for the 1996 taxation year.
The Law
[6] The relevant sections of the Income Tax Act read as follows (paraphrased as relevant):
"60(b)
(b) Alimony payments - an amount paid by the taxpayer in the year as alimony ... payable on a periodic basis for the maintenance of the ... children of the recipient ... if the taxpayer, because of the breakdown of the taxpayer’s marriage, was living separate and apart from the spouse ... to whom the taxpayer was required to make the payment at the time the payment was made ... and the amount was paid ... under a written agreement.
60.1(3)
(3) Prior payments. For the purposes of ... section 60, where a ... written agreement made at any time in a taxation year provides that an amount paid before that time and ... in the preceding taxation year is to be considered to have been paid and received thereunder, the amount shall be deemed to have been paid thereunder."
[7] The following cases were cited to me and have been considered by me:
Chabros v. Her Majesty the Queen, 95 DTC 5247 (F.C.A.)
Chabros v. The Minister of National Revenue, February 12, 1992, unreported (T.C.C.)
Stewart v. The Minister of National Revenue, January 4, 1990, unreported (T.C.C.)
MacLachlin v. The Minister of National Revenue, December 6, 1991, unreported (T.C.C.)
Von Neudegg v. Her Majesty the Queen, February 9, 1999, unreported (T.C.C.).
[8] I am particularly mindful of the words of the Federal Court of Appeal in the Chabros case:
“...the plain meaning of this text requires that the agreement, unlike clause 14 (above), mustprovide that prior payments shall be considered as having been paid and received pursuant thereto.” (emphasis added by me)
Clause 14 in that case contained a simple acknowledgement of payment of maintenance in a prior year.
The Facts
[9] The relevant terms of the Agreement in the case at hand read as follows:
"This letter is to verify that the said parties, Perry J. Pilon and Dorothy A. Pilon, upon their separation in January of 1996, have entered into a verbal agreement between themselves. The agreement is as follows:
Perry J. Pilon will pay Dorothy A. Pilon child support in the amount of $1,300.00 per month - $260.00 per month per child. This agreement is in effect until December 31, 1996. A new agreement will be drawn up for 1997."
[10] It is clear from the evidence of the Appellant, that he separated from his spouse in January 1996. He then made payments to her throughout 1996 in the total amount of $13,435.00, mostly at the rate of $1,300 per month. On December 2, 1996 an order was made in the Provincial Court of Saskatchewan which required the Appellant to pay to his wife the sum of $1,500.00 per month for their children commencing on December 15, 1996. The Appellant was unaware of the terms of this order as he was away working in the North.
[11] It is to be noted that the written Agreement between the parties was signed on June 18, 1997 that is to say five and one half months after the close of the 1996 taxation year. The evidence revealed that it was prepared by the mother of the Appellant after the latter had discussed the matter with Revenue Canada officials. It is clear that he is not a highly educated man and that he relied on others to do what was required in this respect. In any event the agreement related only to payments for the financial support for the children throughout the 1996 year. It did not relate in any way to the 1997 year for which there was either to be a new agreement or the parties would rely on the family court order. The Appellant’s spouse signed the agreement as it was presented.
[12] It is clear from the evidence of the Appellant, and he was perfectly honest in this respect, that the final words: “Child support payments started February 1, 1996 prior to the signing of this agreement” were added to the agreement after he and his spouse had signed it and after further discussions with Revenue Canada. She however, did not sign the addition, although he says that she agreed to it verbally. Thus, the Court cannot consider it as part of the “signed” agreement as it was not.
[13] The reason given by Revenue Canada, by letter dated November 6, 1997 at the time of the re-assessment, and by the Minister as expressed in the Reply to the Notice of Appeal, is that the “written agreement does not state that prior payments were made under the agreement” and that “prior payments have not been considered as {having} been paid or received in accordance with a written agreement...”. (emphasis mine)
[14] The position of the Minister is based on the fact that the agreement does not contain words which purport to provide for the payments made in the 1996 taxation yearto be considered to have been paid and received thereunder. In this respect the Minister relies upon the Chabros case amongst others. There seems to me, to be a fundamental distinction between that case and the one at hand. In the Chabros case, the agreement created a future obligation and made a simple reference to the fact that past payments had been made. However, it created no legal obligation with respect to the past period of time. In the case at bar, the agreement in question ratifies a verbal agreement made at the time of separation (January 1996) and to the extent that payments were not made (and some were not) creates a legal obligation upon which the recipient spouse would be entitled to rely. The agreement by its very nature refers not to 1997 obligations but to 1996 obligations and the payments made are consistent only with those obligations. There does not seem to me, to be any clearer way of ensuring that payments were made under the terms of the agreement than to say that they will be paid in accordance with the terms of the agreement. Clearly, in that context, the agreement “provides”.
[15] Section 60.1(3) of the Income Tax Act does not say “states” but rather “provides” for the amounts paid before execution of the agreement “to be considered to have been paid” thereunder. In simple terms that means to make some arrangement for that scenario. The recipient spouse, in this case, could not have sought a second payment of the same amount and thus the only logical conclusion which can be drawn is that the payments made in 1996 were to be considered to have been paid and received thereunder. If the document creates a legal obligation to pay, refers to monthly payments to be made and those payments, which are already made, cannot be the subject of any further requirement to be paid, then they must be considered to have been paid and received under that document. That is the provision that is made by the document. It may not be spelled out in as simple words as often is the case, but in my view that is the clear “provision” that is made by the document.
[16] The agreement did not and could not be said to relate to any other payments. Thus it “provided”, in the sense that it arranged for or stipulated for these payments to be the payments due under the agreement. As opposed to the agreements in the cases cited to me by counsel, which in a sense were nothing more than acknowledgements of prior payments or confirmations or receipts, the agreement at hand creates an actual obligation or at the very least ratifies an existing obligation and if the payments made throughout 1996 were not to be considered to be paid thereunder the question arises under what other provision they could be considered to have been paid.
Conclusion
[17] Clearly, in my view, the agreement makes provision for the amounts paid in 1996 to be considered to have been paid under its terms. The language is not as succinct as it might have been but that is what it purports to do and does in fact do. In the event the appeal is allowed.
Signed at Calgary, Alberta, this 12th day of October 1999.
"Michael H. Porter"
D.J.T.C.C.